The Church of England Pensions Board (CEPB) has issued a riposte to charges by activist investor John Ralfe that its funded pension scheme for clergy was seriously understated, branding his claim as “simply inaccurate”.

Ralfe had written to Justin Welby, the Archbishop of Canterbury and head of the Church, asking him to commission a report into the £1.1bn (€1.3bn) scheme’s funding.

He warned that the scheme’s real deficit was £391m, a third higher than the £293m shown in the scheme accounts.

Ralfe based this assertion on the fact the scheme had raised the discount rate used to value its liabilities by 0.5% – using the previous rate would have resulted in the higher deficit figure.

And he said the discount rate had been changed without explanation.

In a statement, the CEPB said: “John Ralfe’s claim that there is a big hole in the clergy pension scheme is simply inaccurate.

“At the last valuation of the scheme, on 31 December 2012, the funding deficit was 25%, and we are on target to be fully funded over the next decade.

“Had the valuation been carried out at the end of 2013, we might have expected the funding deficit to be closer to 15%.”

The CEPB said it had made the assumptions for the valuation based on its assessment of the strength of the responsible bodies’ financial covenant, the fall in yields on fixed interest Gilts, market expectations for future RPI inflation and up-to-date mortality expectations.

“The discount rate is in line with advice from an independent actuary and with the requirements of the pensions regulator,” it added.

The Church of England Clergy Pensions Scheme is a funded defined benefit (DB) scheme set up to provide retirement benefits for clergy and church workers relating to service from 1998 onwards.

Pensions relating to pre-1998 service are paid out of the Church Commissioners’ £5.5bn endowment fund.

According to press reports, Ralfe also dubbed the pension scheme the “riskiest in the country in terms of asset-type” because of its high allocation to equities (93%).

However, the scheme’s accounts show that, at 31 December 2012, 78% of its £1.1bn return-seeking pool was invested in equities, while all its £200m liability-matching pool was invested in bonds.

The CEPB said: “Our return-seeking funds have returned 20.8% over the three years to the end of 2012, and, provisionally, 27.7% over the three years to 2013, improving the funding position of the scheme.”

The CEPB added: “Ralfe also fails to take into account that, unlike most other defined benefit schemes, this scheme is still quite immature, and is still open to new members, giving it a healthy contribution inflow.

“A bond-heavy investment policy is not normally seen as either necessary or desirable for relatively immature schemes, and would make them unnecessarily expensive.”

It also said that, although Ralfe had raised similar issues in the past, he had declined numerous offers by the CEPB to meet to discuss them.

Topics